FORM 10‑Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ................ to ...................

Commission File Number 0‑5486

PRESIDENTIAL LIFE CORPORATION_________________________

(Exact name of registrant as specified in its charter)

Delaware 13‑2652144________________ (State or other jurisdiction of (I.R.S. Employer Identification No.)

incorporation or organization)

69 Lydecker Street, Nyack, New York 10960___________

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code 845 ‑ 358‑2300_________

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO

There were 29,357,368 shares of common stock, par value $.01 per share of the issuer's common stock outstanding as of the close of business on November 9, 2004.

INDEX

Part I ‑ Financial Information Page No.

Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets (Unaudited)

September 30, 2004 and December 31, 2003 ................... 3

Condensed Consolidated Statements of Income (Unaudited)

For the Nine Months Ended September 30, 2004 and 2003......... 4

Condensed Consolidated Statements of Income (Unaudited) - For

the Three Months Ended September 30, 2004 and 2003............ 5

Condensed Consolidated Statements of Shareholders'

Equity (Unaudited) ‑ For the Nine Months Ended

September 30, 2004 and 2003..................................... 6

Condensed Consolidated Statements of Cash Flows (Unaudited) ‑

For the Nine Months Ended September 30, 2004 and 2003.......... 7

Notes to Condensed Consolidated Financial Statements (Unaudited) 8‑17

Report of Independent Registered Public Accounting Firm......... 18

Item 2. Management's Discussion and Analysis of

Financial Condition and Results of Operations......... 19-33

Part II ‑ Other Information........................................ 33

Item 1. Legal Proceedings

Item 2. Changes in Securities

Item 3. Defaults Upon Senior Securities

Item 4. Submission of Matters to a Vote of Security Holders

Item 5. Other Information

Item 6. Exhibits and Reports on Form 8‑K

Signatures.......................................................... 34

Certification of Chief Executive Officer ........................... 35

Certification of Principal Accounting Officer ...................... 36

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	September 30, 2004 (Unaudited)	December 31, 2003
ASSETS:
Investments:
Fixed maturities:
Available for sale at market (Cost of
$3,935,330 and $3,745,304,respectively)	$ 4,135,596	$3,890,407
Common stocks (Cost of $28,338 and
$31,271, respectively)	36,002	39,652
Mortgage loans	0	9,142
Real estate	415	415
Policy loans	18,004	18,262
Short-term investments	23,875	23,664
Other invested assets	338,734	323,139
Total Investments	4,552,626	4,304,681

Cash and cash equivalents	10,728	12,907
Accrued investment income	58,872	50,956
Amounts due from security transactions	628	1,196
Federal income tax recoverable	0	27,137
Deferred policy acquisition costs	97,563	108,713
Furniture and equipment, (net of accumulated depreciation of $1,433 and $1,389, respectively)	223	200
Amounts due from reinsurers	16,245	15,688
Other assets	4,780	5,094
Assets held in separate account	1,729	2,450
TOTAL ASSETS	$ 4,743,394	$ 4,529,022

LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Policy Liabilities:
Policyholders' account balances	$ 3,202,609	$ 3,092,872
Future policy benefits:
Annuity	649,965	646,958
Life and accident and Health	65,973	65,425
Other policy liabilities	6,059	6,193
Total Policy Liabilities	3,924,606	3,811,448


Short-term note payable	50,000	50,000
Notes Payable	100,000	100,000
Federal income tax payable	3,737	0
Deferred federal income taxes	54,461	38,127
Deposits on policies to be issued	9,612	11,795
General expenses and taxes accrued	4,546	7,610
Other liabilities	24,619	18,827
Liabilities related to separate account	1,729	2,450
Total Liabilities	4,173,310	4,040,257

Commitments and Contingencies

Shareholders' Equity:
Capital stock ($.01 par value; authorized
100,000,000 shares; issued and outstanding,
29,357,368 shares in 2004 and 29,334,668
shares in 2003	294	293
Accumulated other comprehensive gain	132,749	88,343
Retained earnings	437,041	400,129
Total Shareholders' Equity	570,084	488,765
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY	$ 4,743,394	$ 4,529,022

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share data)

	NINE MONTHS ENDED SEPTEMBER 30 (UNAUDITED)
REVENUES:	2004			2003
Insurance Revenues:
Premiums	$	8,401		$	7,232
Annuity considerations	21,494			24,849
Universal life and investment type policy
fee income	2,290			2,283
Net investment income	251,628			207,383
Realized investment gains	13,160			6,329
Other income	506			1,234

TOTAL REVENUES	297,479			249,310

BENEFITS AND EXPENSES:
Death and other life insurance benefits	9,691			12,711
Annuity benefits	54,954			53,633
Interest credited to policyholders' account
balances	122,753			120,400
Interest expense on notes payable	7,265			7,248
Other interest and other charges	631			541
Increase in liability for future policy benefits	2,422			8,485
Commissions to agents, net	8,392			9,760
General expenses and taxes	13,320			10,339
Change in deferred policy acquisition costs	8,541			(5,985)

TOTAL BENEFIT AND EXPENSES	227,969			217,132

Income before income taxes	69,510			32,178

Provision (benefit) for income taxes
Current	31,356			8,148
Deferred	(7,305)			1,582
	24,051			9,730

NET INCOME	$		45,459	$	22,448

Earnings per common share, basic and diluted	$ 1.55			$ .77

Weighted average number of shares outstanding
During the period, basic	29,344,209			29,334,668

Weighted average number of shares outstanding
During the period, diluted	29,444,050			29,351,331

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share data)

	THREE MONTHS ENDED SEPTEMBER 30 (UNAUDITED)
REVENUES:	2004			2003
Insurance Revenues:
Premiums	$		3,533	$	2,698
Annuity considerations	3,796			6,339
Universal life and investment type policy
fee income	707			914
Net investment income	85,563			71,734
Realized investment gains	458			(2,194)
Other income	(58)			(46)

TOTAL REVENUES	93,999			79,445

BENEFITS AND EXPENSES:
Death and other life insurance benefits	3,672			2,946
Annuity benefits	18,257			18,049
Interest credited to policyholders' account
balances	41,270			40,736
Interest expense on notes payable	2,425			2,376
Other interest and other charges	210			329
Increase in liability for future policy benefits	(3,503)			217
Commissions to agents, net	2,690			2,163
General expenses and taxes	3,459			3,834
Change in deferred policy acquisition costs	2,667			(611)

TOTAL BENEFIT AND EXPENSES	71,147			70,039

Income before income taxes	22,852			9,406

Provision (benefit) for income taxes
Current	10,769			(1,028)
Deferred	(2,862)			3,879
	7,907			2,851

NET INCOME	$	14,945		$	6,555

Earnings per common share, basic and diluted	.51			.22

Weighted average number of shares outstanding
During the period, basic	29,357,368			29,334,668

Weighted average number of shares outstanding
During the period, diluted	29,501,438			29,418,466

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

(in thousands except shared data)

(unaudited)

	Capital Stock	Additional Paid-in- Capital	Retained Earnings	Accumulated Other Comprehensive Income	Total
Balance at January 1, 2003	$ 293	$ 0	$380,577	$ 17,820	$398,691

Comprehensive Income:

Net Income			22,448		22,448

Transition Adjustment				(3,639)	(3,639)

Net Unrealized
Investment Gains				72,094	72,094

Comprehensive Income					90,903

Dividends Paid to Shareholders ($.10 per share)			(8,799)		(8,799)

Balance at September 30, 2003	$ 293	$ 0	$394,226	$86,275	$480,794


Balance at January 1, 2004	$ 293	$ 0	$ 400,129	$ 88,343	$488,765

Comprehensive Income:

Net Income			45,459		45,459

Transition Adjustment				(2,967)	(2,967)

Net Unrealized Investment Gains				47,373	47,373

Comprehensive Income					89,865

Issuance of Shares Under stock option plan	1		247		248

Dividends paid to Shareholders ($.10 per share)			(8,794)		(8,794)

Balance at September 30, 2004	$ 294	$ 0	$ 437,041	$ 132,749	$ 570,084

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED)
	2004			2003
OPERATING ACTIVITIES:
Net Income	$	45,459		$	22,448
Adjustments to reconcile net income to net cash provided by operating activities:
Benefit for deferred income taxes	(7,305)			1,582
Depreciation and amortization	745			604
Net accrual of discount on fixed maturities	(19,819)			(19,575)
Realized investment (gains) losses	(13,159)			(6,329)
Changes in:
Accrued investment income	(7,916)			(5,919)
Deferred policy acquisition cost	8,541			(5,985)
Federal income tax recoverable	27,137			7,790
Liability for future policy benefits	3,555			5,205
Other items	422			1,239

Net Cash Provided By Operating Activities	37,660			1,060

INVESTING ACTIVITIES:
Fixed Maturities:
Available for Sale:
Acquisitions	(452,860)			(990,288)
Maturities, calls and repayments	268,968			499,939
Sales	20,844			406,919
Common Stocks:
Acquisitions	(17,934)			(25,548)
Sales	24,161			13,502
Increase (decrease) in short-term investments and policy loans	47			279,929
Other Invested Assets:
Additions to other invested assets	(56,988)			(121,352)
Distributions from other invested assets	57,689			54,572
Mortgage loan on real estate	11,080			128
Amount due to security transactions, net	12,950			7,243

Net Cash (Used In)/Provided By In Investing Activities	(132,043)			125,044

FINANCING ACTIVITIES:
Proceeds from dollar repurchase agreements	0			1,057,901
Repayment of dollar repurchase agreements	0			(1,320,419)
Increase in policyholders' account balances	109,737			158,322
Bank overdrafts	(6,805)			0
Deposits on policies to be issued	(2,183)			(71)
Issuance of common stock	247			(4,160)
Dividends paid to shareholders	(8,792)			(8,799)

Net Cash Provided By/(Used In) Financing Activities	92,204			(117,226)

(Decrease)/Increase in Cash and Cash Equivalents	(2,179)			8,878
Cash and Cash Equivalents at Beginning of Year	12,907			13,101

Cash and Cash Equivalents at End of Period	$		10,728	$	21,979
						$ (2,512)
Supplemental Cash Flow Disclosure:

Income Taxes Paid	$		16,563	$	359

Interest Paid	$		8,369	$	8,664

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Business

Presidential Life Corporation ("the Company"), through its wholly‑owned subsidiary, Presidential Life Insurance Company ("Insurance Company"), is engaged in the sale of life insurance and annuities.

B. Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") applicable to stock life insurance companies for interim financial statements and with the requirements of Form 10‑Q. Accordingly, they do not include all of the information and footnotes required by GAAP applicable to stock life insurance companies for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Interim results for the nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. Management believes that, although the disclosures are adequate to make the information presented not misleading, these condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2003.

We manage and report our business as a single segment in accordance with the provisions of FAS 131, which views certain qualitative and quantitative criteria for determining whether different lines of business should be aggregated for financial reporting purposes. Our insurance subsidiary, PLIC, has historically generated in excess of 95% of our consolidated revenues and our reported profit or loss. In addition, PLIC is our only subsidiary which has assets in excess of 10% of the consolidated assets of the Company. Therefore, only PLIC meets the quantitative thresholds of a reportable segment. Although PLIC writes life and annuity business, the nature of these products are sufficiently similar to permit their aggregation. More than 80% of our life insurance products are single premium universal life policies, which bear substantially all the attributes of our single premium deferred annuity products. Both are marketed and distributed by the same independent agents. The products are administered and managed within the same administrative facility, with overlapping administrative functions. The products are also directed at a similar market, namely mature consumers seeking financial protection for secure future cash streams for themselves and their heirs and associated tax benefits. The regulatory frameworks for the products are also substantially the same, as both PLIC and its independent agents sell these products under single licenses issued by various state insurance departments. Under these circumstances, the applicable provisions of FAS 131 permit aggregation as a single operating segment.

C. Investments

Fixed maturity investments available for sale represent investments, which may be sold in response to changes in various economic conditions. These investments are carried at fair value and net unrealized gains (losses), net of the effects of amortization of deferred policy acquisition costs and deferred federal income taxes are credited or charged directly to shareholders' equity, unless a decline in market value is considered to be other than temporary in which case the investment is reduced to its fair value and the loss is recorded in the income statement. Equity securities include common stocks and non-redeemable preferred stocks and are carried at market value, with the related unrealized gains and losses, net of deferred federal income tax effect, if any, charged or credited directly to shareholders' equity, unless a decline in market value is deemed to be other than temporary in which case the investment is reduced to its fair value and the loss is recorded in the income statement.

Other invested assets which are recorded using the equity method, represents interests in limited partnerships, which principally are engaged in real estate, international opportunities, acquisitions of private growth companies, debt restructuring and merchant banking. In general, risks associated with such limited partnerships include those related to their underlying investments (i.e., equity securities, debt securities and real estate), plus a level of illiquidity, which is mitigated by the ability of the Company to take annual distributions of partnership earnings. To evaluate the appropriateness of the carrying value of a limited partnership interest, management maintains ongoing discussions with the investment manager and considers the limited partnership's operation, its current and near term projected financial condition, earnings capacity, and distributions received by the Company during the year. Because it is not practicable to obtain an independent valuation for each

limited partnership interest, for purposes of disclosure the market value of a limited partnership interest is estimated at book value. Management believes that the net realizable value of such limited partnership interests, in the aggregate, exceeds their related carrying value as of September 30, 2004. As of September 30, 2004, the Company was committed to contribute, if called upon, an aggregate of approximately $101.6 million of additional capital to certain of these limited partnerships. However, management does not expect the entire amount to be drawn down as certain of these limited partnerships are nearing the end of the period during which investors are required to make contributions.

In evaluating whether an investment security or other investment has suffered an impairment in value which is deemed to be other than temporary, management considers all available evidence. When a decline in the value of an investment security or other investment is considered to be other than temporary, the investment is reduced to its net realizable or fair value, as applicable (which contemplates the price that can be obtained from the sale of such asset in the ordinary course of business) which becomes the new cost basis. The amount of reduction is recorded in the income statement as a realized loss. A recovery from the adjusted cost basis is recognized as a realized gain only at sale.

As of May 2003, the Company no longer participates in "dollar roll" repurchase agreement transactions. Dollar roll transactions involve the sale of certain mortgage-backed securities to a holding institution and a simultaneous agreement to purchase substantially similar securities for forward settlement at a lower dollar price. The proceeds are invested in short‑term securities at a positive spread until the settlement date of the similar securities. During this period, the holding institution receives all income and prepayments for the security. Dollar roll repurchase agreement transactions are treated as financing transactions for financial reporting purposes.

Realized gains and losses on disposal of investments are determined for fixed maturities and equity securities by the specific‑identification method.

Investments in short‑term securities, which consist primarily of United States Treasury Notes and corporate debt issues maturing in less than one year, are recorded at amortized cost, which approximates market. Mortgage loans are stated at their amortized indebtedness. Policy loans are stated at their unpaid principal balance.

The Company's investments in real estate include two buildings in Nyack, New York, which are occupied entirely by the Company. The investments are carried at cost less accumulated depreciation. Accumulated depreciation amounted to $206,800 and $206,800 at September 30, 2004 and 2003, respectively, and both buildings are fully depreciated and have no depreciation expense.

Deferred Policy Acquisition Costs

The costs of acquiring new business (principally commissions, certain underwriting, agency and policy issue expenses), all of which vary with the production of new business, have been deferred. When a policy is surrendered, the remaining unamortized cost is written off. Deferred policy acquisition costs are subject to recoverability testing at time of policy issue and loss recognition testing at the end of each year.

For immediate annuities with life contingencies, deferred policy acquisition costs are amortized over the life of the contract, in proportion to expected future benefit payments.

For traditional life policies, deferred policy acquisition costs are amortized over the premium paying periods of the related policies using assumptions that are consistent with those used in computing the liability for future policy benefits. Assumptions as to anticipated premiums are estimated at the date of policy issue and are consistently applied during the life of the contracts. For these contracts the amortization periods generally are for the scheduled life of the policy, not to exceed 30 years.

Deferred policy acquisition costs are amortized over periods ranging from 15 to 25 years for universal life products and investment‑type products as a constant percentage of estimated gross profits arising principally from surrender charges and interest and mortality margins based on historical and anticipated future experience,

updated regularly. The effects of revisions to reflect actual experience on previous amortization of deferred policy acquisition costs, subject to the limitation that the accrued interest on the deferred acquisition costs balance may not exceed the amount of amortization for the year, are reflected in earnings in the period estimated gross profits are revised. For that portion of the business where acquisition costs are not deferred, (i.e, medical stop loss business) management believes the expensing of policy acquisition costs is immaterial.

E. Future Policy Benefits

Future policy benefits for traditional life insurance policies are computed using a net level premium method on the basis of actuarial assumptions as to mortality, persistency and interest established at policy issue. Assumptions established at policy issue as to mortality and persistency are based on anticipated experience, which, together with interest and expense assumptions, provide a margin for adverse deviation. Benefit liabilities for deferred annuities during the accumulation period are equal to accumulated contract holders' fund balances and after annuitization are equal to the present value of expected future payments.

F. Policyholders' Account Balances

Policyholders' account balances for universal life and investment‑type contracts are equal to the policy account values. The policy account values represent an accumulation of gross premium payments plus credited interest less mortality and expense charges and withdrawals.

G. Federal Income Taxes

The Company and its subsidiaries file a consolidated federal income tax return. The asset and liability method in recording income taxes on all transactions that have been recognized in the financial statements is used. SFAS 109 provides that deferred income taxes are adjusted to reflect tax rates at which future tax liabilities or assets are expected to be settled or realized.

H. Earnings Per Common Share “EPS”

Basic EPS is computed based upon the weighted average number of common shares outstanding during the quarter. Diluted EPS is computed based upon the weighted average number of common shares including contingently issuable shares and other dilutive items. The weighted average number of common shares used to compute diluted EPS for the nine months ended September 30, 2004 and 2003 was 29,444,050 and 29,351,331, respectively. The dilution from the potential exercise of stock options outstanding did not change basic EPS.

I. New Accounting Pronouncements

In December 2003, the FASB issued Statement of Financial Accounting Standards ("SOFAS") No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits". This standard requires additional detailed disclosures regarding pension plan assets, benefit obligations, cash flows, benefit costs and related information. With the exception of disclosures related to foreign plans, the new disclosures are required to be provided in annual statements of public entities with fiscal years ending after December 15, 2003. The Company adopted the new disclosure requirements for all plans as of December 31, 2003.

10.

In March 2004, the Emerging Issues Task Force ("EITF") reached further
consensus on Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and
Its Application to Certain Investments ("EITF 03-1"). EITF 03-1 provides
accounting guidance regarding the determination of when an impairment of debt
and marketable equity securities and investments accounted for under the cost
method should be considered other-than-temporary and recognized in income. An
EITF 03-1 consensus reached in November 2003 also requires certain quantitative
and qualitative disclosures for debt and marketable equity securities classified
as available-for-sale or held-to-maturity under SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities, that are impaired at the
balance sheet date but for which an other-than-temporary impairment has not been
recognized. The Company has complied with the disclosure requirements of EITF
03-1 which were effective December 31, 2003. The accounting guidance of EITF
03-1 relating to the recognition of investment impairment, which was to be
effective in the third quarter of 2004 has been delayed pending the development
of additional guidance. The Company is actively monitoring the deliberations
relating to this issue at the Financial Accounting Standards Board ("FASB") and
currently is unable to determine the impact of EITF 03-1 on its unaudited
interim condensed consolidated financial statements.

In December 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants ("AcSEC") issued Statement of Position 03-3, "Accounting for Certain Loans or Debt Securities " (SOP 03-3). SOP 03-3 addresses the accounting for differences between contractual and expected cash flows to be collected from an investment in loans or fixed maturity securities (collectively hereafter referred to as "loan(s)") acquired in a transfer if those differences are attributable, at least in part, to credit quality. SOP 03-3 limits the yield that may be accreted to the excess of the estimated undiscounted expected principal, interest and other cash flows over the initial investment in the loan. SOP 03-3 also requires that the excess of contractual cash flows over cash flows expected to be collected not be recognized as an adjustment of yield, loss accrual or valuation allowance. SOP 03-3 is effective for loans acquired in fiscal years beginning after December 15, 2004. For loans acquired in fiscal years beginning on or before December 15, 2004 and within the scope of Practice Bulletin 6 "Amortization of Discounts on Certain Acquired Loans", SOP 03-3, as it pertains to decreases in cash flows expected to be collected, should be applied prospectively for fiscal years beginning after December 15, 2004. Management is in the process of assessing the impact of adopting SOP 03-3.

In July 2003, AcSEC issued a final Statement of Position 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts" (the "SOP"). The major provisions of the SOP require: recognizing expenses for a variety of contracts and contract features, including guaranteed minimum death benefits ("GMDB"), certain death benefits on universal-life type contracts and annuitization options, on an accrual basis versus the previous method of recognition upon payment; reporting and measuring assets and liabilities of certain separate account products as general account assets and liabilities when specified criteria are not met; reporting and measuring the Company's interest in its separate accounts as general account assets based on the insurer's proportionate beneficial interest in the separate account's underlying assets; and Capitalizing sales inducements that meet specified criteria and amortizing such amounts over the life of the contracts using the same methodology as used for amortizing deferred acquisition costs ("DAC"). The SOP is effective for financial statements for fiscal years beginning after December 15, 2003. The adoption of SOP 03-1 had no impact on the Company’s consolidated financial statements.

In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 150,Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. Statement No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. In addition, the Statement requires an issuer to classify certain instruments with specific characteristics described in it as liabilities. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of Statement No. 150 did not have an impact on the Company's consolidated financial statements.

In April 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. Statement No. 149 amends Statement 133 for decisions made (1) as part of the Derivatives Implementation Group process that

11.

effectively required amendments to Statement 133, (2) in connection with other Board projects dealing with financial instruments, and (3) in connection with implementation issues raised in relation to the application of the definition of a derivative. The Statement clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative discussed in paragraph 6(b) of Statement 133, clarifies when a derivative contains a financing component, amends the definition of an underlying derivative to conform it to language used in FASB Interpretation No.45, Guarantor's Accounting and Disclosure Requirements for Guarantees, including indirect Guarantees of Indebtedness of Others, and amends certain other existing pronouncements. Those changes will result in more consistent reporting of contracts as either derivatives or hybrid instruments. This statement is effective for contracts entered into or modified after September 30, 2003 and for hedging relationships designated after September 30, 2003. The adoption of Statement No. 149 had no impact on the Company's consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (²FIN 46²). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities entered into prior to February 1, 2003, FIN 46 is effective for the first interim or annual period beginning after June 15, 2003. In October 2003, the FASB issued FASB Staff Position (FSP) FIN 46-6, Effective Date of FASB Interpretation, No. 46 Consolidation of Variable Interest Entities. This FSP provides a deferral of interests held by public entities in a variable interest entity or potential variable interest entity until the end of the first interim or annual period after December 15, 2003, if (a) the variable interest entity was created before February 1, 2003 and (b) the public entity has not issued financial statements reporting the variable interest entity that was created before February 1, 2003, in accordance with FIN 46, other than in the disclosure required by FIN 46. The FSP was effective for financial statements issued after October 9, 2003. The adoption of FIN 46 for variable entities created after February 1, 2003 did not have an impact on the consolidated financial statement of the company as of December 31, 2003. The adoption of the provision of FSP FIN 46-6, which is effective for the Company on March 31, 2004, had no impact on the Company’s consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others (²FIN 45²). FIN 45 requires entities to establish liabilities for certain types of guarantees, and expands financial statement disclosures for others. Disclosure requirements under FIN 45 are effective for financial statements of annual periods ending after December 15, 2002 and are applicable to all guarantees issued by the guarantor subject to the provisions of FIN 45. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of FIN 45 had no impact on the Company’s consolidated financial statements.

In October 2002, the FASB issued SFAS No.147, Acquisitions of Certain Financial Institutions (²SFAS 147²). This statement, which provides guidance on the accounting for the acquisition of a financial institution, applies to all acquisitions except those between two or more mutual enterprises. The standard is effective for acquisitions for which the date of acquisition is on or after October 1, 2002. The adoption of SFAS 147 did not have an impact on the Company¢s consolidated financial statements.

In August 2002, the FASB issued SFAS No.146, Accounting for Costs Associated with Exit or Disposal Activities (²SFAS 146²). The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Previous accounting guidance was provided by EITF 94-3, ²Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)². SFAS 146 replaces EITF 94-3. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS 146 did not have an impact on the Company¢s consolidated financial statements.

12.

In October 2001, the FASB issued SFAS No.144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 provides a single model for accounting for long-lived assets to be disposed of, by superceding SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"), and the accounting and reporting provisions of Accounting

Principles Board Opinion No.30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently occurring Events and Transactions ("APB 30"). Under SFAS 144, discontinued operations are measured at the lower of carrying value or fair value less cost to sell rather than on a net realizable value basis. Future operating losses relating to discontinued operations are also no longer recognized before they occur. SFAS 144 broadens the definition of a discontinued operation to include a component of an entity (rather than a segment of a business.) SFAS 144 also requires long-lived assets to be disposed of other than by sale to be considered held and used until disposed. SFAS 144 retains the basic provisions of (i) APB 30 regarding the presentation of discontinued operations in the income statement, (ii) SFAS 121 relating to recognition and measurement of impaired long-lived assets classified as held for sale. SFAS 144 was effective beginning January 1, 2002. The adoption of SFAS 144 by the Company did not have an impact on the Company's consolidated financial statements.

In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets.” SFAS No. 141 requires that all business combinations be accounted for under the purchase method only and that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. SFAS No. 142 requires that ratable amortization of goodwill be replaced with periodic tests of the goodwill's impairment and identifiable intangible assets other than goodwill be amortized over their useful lives. SFAS No. 141 is effective for acquisitions made after June 30, 2001. The provisions of SFAS No. 142 were effective for fiscal years beginning after December 15, 2001. Adoption of SFAS 141 and SFAS 142 did not have an impact on the Company's consolidated financial statements.

2. INVESTMENTS

There were no investments in any one issuer that aggregate 10% or more of Shareholder's Equity as of September 30, 2004.

The following information summarizes the components of net investment income:

	September 30, 2004 (in thousands)		September 30,2003 (in thousands)
Fixed maturities	$	205,511	$	193,717
Common stocks	541		285
Short‑term investments	206		1,776
Other investment income	50,063		16,643
	256,321		212,421

Less investment expenses	4,693		5,038

Net investment income	$	251,628	$	207,383

13.

As of September 30, 2004 and 2003 there were thirty-two fixed maturity investments with an aggregate carrying value of $223.3 million and forth-four fixed maturity investments with an aggregate carrying value of $227.1 million respectively, in the accompanying balance sheet which were non-income producing. Eighteen of these fixed maturity investments in 2004 and eighteen in 2003 with an aggregate carrying value of $217.6, and $214.1 respectively, are defeased with U.S Treasuries in an amount sufficient to insure full payment of principal.

The following table presents the amortized cost and gross unrealized losses for securities where the estimated fair value had declined and remained below amortized cost at September 30, 2004:

	Less Than 12 Months		12 Months or More		Total
	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
Description of Securities			(in thousands)

US Treasury obligations and direct obligations of US Government Agencies	119,221	1,754	192,992	11,546	312,213	13,300
Corporate Bonds	242,673	11,150	566,005	86,111	808,678	97,261
Preferred Stocks	25,751	472	11,684	646	37,435	1,118
Subtotal Fixed Maturities	387,645	13,376	770,681	98,303	1,158,326	111,679
Common Stock	16,273	478	0	0	16,273	478
Total Temporarily Impaired Securities	403,918	13,854	770,681	98,303	1,174,599	112,157

The following table presents the total gross unrealized losses for fixed maturities where the estimated fair value had declined and remained below amortized cost by September 30, 2004.

	Gross Unrealized Losses	% Of Total	Gross Unrealized Losses For Principal Protected Notes	% of Total	Gross Unrealized Losses Net of Principal Protected Notes	% of Total
	(in thousands)
Less than twelve months	13,376	11.98	0	0	13,376	27.42
Twelve months or more	98,303	88.02	62,886	100.00	35,417	72.58
Total	111,679	100.00	62,886	100.00	48,793	100.00

The principal protected notes described in this Note to the condensed consolidated financial ftatements consist of a variable rate coupon bond secured by AAA-rated zero coupon bonds. The bond collateral is deposited into a trust account (trustees includes The Bank of New York, JP Morgan, U.S. Trust Company and State Street Bank). The bond collateral accretes to par value at maturity of the principal protected notes, thus defeasing the notes and insulating the Company from any negative credit events that might interfere with the repayment of principal.

The contractual right of the variable rate subordinated notes to interest payments is determined by the availability of cash flow from investments, either high-yield bonds or bank loans, held in certain collateralized bond or collateralized debt structures. The right to receive payments of interest and the level of those payments is totally dependent upon the performance of the investment. The failure of the investment to produce cash flow sufficient to pay interest on any payment date does not constitute an event of default. The temporary, or eventually permanent, failure to receive interest payments will not interfere with the availability of the matured proceeds of the defeasance collateral to pay the par amount of the principal protected notes at maturity.

The fair value of the Notes shown in this section represents the fair value of the defeasance collateral. Currently, no value is attributed to the variable coupon subordinated notes also included in the assets of the trust. The determination of the value to attribute to the variable coupon subordinated notes is determined quarterly based on estimated future cash flows from such notes at the time.

14.

The Company’s investments are primarily concentrated in a variety of fixed income securities that are exposed to a combination of credit risk and interest rate risk, each of which can impact fluctuations in overall market valuation. During the third quarter of 2004, the portfolio experienced an increase in market value caused by a significant decline in interest rates, as the 10-year Treasury yield rose from 4.58% on June 30, 2004 to 4.12% on September 30, 2004. This represented an increase in the

market value of the benchmark 10-year Treasury of approximately 3 5/8 points or 3.6% of total value. The 30-year Treasury yield increased from 5.29% to 4.89% during the same period, representing an increase in market value of approximately 5 7/8 points or 5.81% of total value. Given the strength of the overall economic recovery and the announced policies of the U.S. Federal Reserve, the Company anticipates a gradual rise in interest rates over the coming quarters of 2004 and 2005. Federal Reserve policies will tend to have a greater impact on the short-end of the Treasury yield curve, and, as a result, we anticipate that the Treasury yield curve will flatten over time. This rise in overall interest rates may have a negative impact on the market valuation of the fixed income portfolio of the Insurance Company. The Company’s book value will generally increase when interest rates decrease and decrease when interest rates increase. The book value per share at September 30, 2004 and December 31, 2003 was $19.42 and $16.66, respectively, reflecting the change in interest rates.

The determination by the Company of which impairments of fixed maturity investments are other than temporary is governed by the Company’s Investment Policy. Under the policy, the Company’s Investment Department has established a continuing procedure of regular review of the investment portfolio. Whenever the market value of an investment declines below 80% of its cost basis or a perceived material event has occurred in the investment or the underlying issuer, that investment is added to an Initial Watch List. Credit files are then created for that investment and one of the Company’s investment analysts prepares a research/credit report for the Investment Committee. The Investment Committee then determines whether the condition of the investment merits placement of the investment on the Watch List. Generally, investments are added to the Watch List, subject to the approval of the Investment Committee, upon the occurrence of one or more of the following events: (i) a downgrade to either B1 by Moody’s or B+ by Standard and Poors; (ii) a downgrade to 5 or 6 by NAIC; or (iii) a decline in the equity market capitalization of an issuer by more than 30% of book value. Each quarter, the Investment Committee reviews the Watch List to determine if an “other than temporary” write down in carrying value is warranted. In making this determination, we consider numerous factors, including our intent to hold the investment to maturity, the severity and nature of the impairment, review of events that gave rise to the impairment, review of credit ratings, credit performance and business prospects of the issuer, any potential adverse changes in the regulatory environment, business climate or liquidity of the issuer and compliance by the issuer with statutory or debt covenants

The primary source of the Company’s current unrealized loss positions is the principal protected notes described above. The determination was based on the failure of the issuers to pay interest under the variable rate coupons, despite the possession of AAA-rated collateral, which secures payment of the principal of those notes. The remaining unrealized loss positions relate to the fluctuation of bond values based on temporary interest rate changes and falling equity market capitalization for corporate bond issuers, especially during 2001 and 2002.

3. NOTES PAYABLE

Notes payable at September 30, 2004 and 2003 consist of $100 million, 7 7/8% Senior Notes (Senior Notes) due February 15, 2009. Interest is payable February 15 and August 15. Debt issue costs are being amortized on the effective interest method over the term of the notes. As of September 30, 2004, unamortized costs were $1.0 million. The total principal is due on February 15, 2009. In addition, the Company had deferred losses of approximately $3.0 million recorded in accumulated other comprehensive income as of September 30, 2004, related to an interest rate lock agreement used to hedge the issuance of the Senior Notes. The Company reclassifies the deferred loss from a liability to accumulated other comprehensive income over the term of the notes. The Company expects to reclassify approximately $672,000 into earnings for the year 2004.

15.

The indenture governing the Senior Notes contains covenants relating to limitations on liens and sale or issuance of capital stock of the Insurance Company. In the event the Company violates such covenants as defined in the indenture, the Company may be obligated to offer to repurchase the entire outstanding principal amount of such notes. As of September 30, 2004, the Company believes that it is in compliance with all of the covenants.

The short-term note payable relates to a bank line of credit in the amount of $50,000,000 and provides for interest on borrowings based on market indices. At September 30, 2004 and 2003 the Company had $50,000,000 and $50,000,000 outstanding, respectively. The line of credit was renewed on April 22, 2004 for a period of one year with The Bank of New York.

4. SHAREHOLDERS' EQUITY

During 2004, the Company's Board of Directors maintained the quarterly dividend rate of $.10 per share. The Company is authorized pursuant to a resolution of the Board of Directors to purchase 385,000 shares of common stock.

NET UNREALIZED INVESMENT GAINS

For the Nine Months ended September 30, 2004:	Pre Tax Amount	Tax (Expense)/ Benefit (in thousands)	After-Tax Amount
Net unrealized gains on investment securities:

Net unrealized holding gains arising during year	82,781	28,559	54,222
Less: reclassification adjustment for gains
realized in net income	(13,160)	(4,541)	(8,619)
Change related to deferred acquisition costs	2,703	933	1,770
Net unrealized investment gains	72,324	24,951	47,373

For the Nine Months ended September 30, 2003:
Net unrealized gains on investment securities:

Net unrealized holding gains arising during year	116,933	35,080	81,853
Less: reclassification adjustment for gains
realized in net income	(6,329)	(1,899)	(4,430)
Change related to deferred acquisition costs	(7,613)	(2,284)	(5,329)
Net unrealized investment gains	102,991	30,897	72,094

EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS

Components of Net Periodic Benefit Cost

	Nine Months ended September 30, 2004		Nine Months ended September 30, 2003

Components of Net Periodic Benefit Cost
Service cost	$	0	$	520,584
Interest cost	500,433		565,266
Actual return on plan assets	(396,042)		(246,879)
Amortization of net (gain)/loss	83,382		132,747
Amortization of transition obligation	0		21,000
Net periodic benefit cost	$	187,773	$	992,718

16.

Employer Contributions

The Company previously disclosed in its financial statements for the year ended December 31, 2003, that it expects to fully fund the plan to effect the expected termination of the plan during the second half of 2004 and estimates the requirement to fully fund the Plan, prior to termination, to be $2 million. As of February 18, 2004 the plan was closed to new entrants, accrual of any future benefits terminated and the plan was “frozen”. On September 8, 2004 the Board of Directors passed a resolution that terminates the plan effective November 30, 2004. As of September 30, 2004, $ 4.33 million of contributions have been made.

7. INCOME TAXES

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, (b) operating loss carry forwards and (c) a valuation allowance.

The valuation allowance relates principally to investment write downs recorded for financial reporting purposes, which have not been recognized for income tax purposes, due to the uncertainty associated with their realizability for income tax purposes. The Company's effective tax rate for each of the nine months ended September 30, 2004 and 2003 was 34.6% and 30.2%, respectively. The increase in the effective rate was due to the Company’s utilization of loss carry-backs during 2003.

8. COMMITMENTS AND CONTINGENCIES

From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. As of September 30, 2004 the Company is not a party to any legal proceedings, the adverse outcome of which, in management's opinion, individually or in the aggregate, would have a material adverse effect on the Company's financial condition or results of operations.

17.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

Presidential Life Corporation

Nyack, New York 10960

We have reviewed the accompanying condensed consolidated balance sheet of Presidential Life Corporation and subsidiaries ("the Company") as of September 30, 2004, and the related condensed consolidated statements of income, for the three-month and nine-month periods ended September 30, 2004 and 2003 and the condensed consolidated statements of stockholders' equity and cash flows for the nine month period ended September 30, 2004 and 2003. These financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Presidential Life Corporation and subsidiaries as of December 31, 2003, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated March 12, 2004, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2003 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Deloitte & Touche LLP

New York, New York

November 9, 2004

18.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

General

The Company is engaged in the sale of insurance products with two primary lines of business: individual annuities and individual life insurance. Our revenues are derived primarily from premiums received from the sale of annuity contracts and universal life insurance policies, from premiums received for whole life and term life insurance products and gains (or losses) from our investment portfolio.

For financial statement purposes, our revenues from the sale of whole life and term life insurance products and annuity contracts with life contingencies are treated differently from our revenues from the sale of annuity contracts without life contingencies, deferred annuities and universal life insurance products. Premiums from the sale of whole or term life insurance products and life contingency annuities are reported as premium income on our financial statements. Premiums from the sale of deferred annuities, universal life insurance products and annuities without life contingencies are not reported as premium revenues, but rather are reported as additions to policyholders’ account balances. From these products, revenues are recognized over time in the form of policy fee income, surrender charges and mortality and other charges deducted from policyholders’ account balances.

Profitability in the Company’s individual annuities and individual life insurance depends largely on the size of its inforce block, the adequacy of product pricing and underwriting discipline, the efficiency of its claims and expense management, and the performance of the investment portfolio.

When we use the term “We,” “Us” and “Our” we mean Presidential Life Corporation, a Delaware Corporation, and its consolidated subsidiaries.

In this discussion we have included statements that may constitute “forward-looking statements” within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and beyond our control. These statements may relate to our future plans and objectives. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results may differ, possibly materially, from the results indicated in these forward-looking statements. Important factors, among others, that could cause our results to differ from those indicated in the forward-looking statements are discussed under “Certain Factors That May Affect Our Business.”

Executive Overview

Our earnings per share were $1.55 at September 30, 2004, as compared to earnings of $.77 per share at September 30, 2003. Our results in the third quarter reflected a continuation of our year-to-year increase in investment income. Our total revenues at September 30, 2004 were $297.5 million, as compared to $249.3 million at September 30, 2003.

The Company’s improved performance in the first three quarters of 2004 results primarily from the improved investment yield of our investment portfolio and our continuing efforts to reduce expenses and to reduce credit risk in our portfolio.

The results for the third quarter benefited from exceptional returns from investments in certain limited partnerships. Under prescribed accounting rules, such returns are deemed to be investment income as opposed to investment gains even though the recurrence of such returns is not predictable.

The New York State Insurance Department is currently conducting a routine triennial examination of the Insurance Company’s statutory financial statements for years 2001 through 2003. To date, there have been no significant issues or concerns raised.

19.

Pricing

Management believes that the Company is able to offer its products at competitive prices to its targeted markets as a result of: (i) maintaining relatively low issuance costs by selling through the independent general agency system; (ii) minimizing home office administrative costs; and (iii) utilizing appropriate underwriting guidelines.

The long‑term profitability of sales of life and most annuity products depends on the degree of margin of the actuarial assumptions that underlie the pricing of such products. Actuarial calculations for such products, and the ultimate profitability of sales of such products, are based on four major factors: (i) persistency; (ii) rate of return on cash invested during the life of the policy or contract; (iii) expenses of acquiring and administering the policy or contract; and (iv) mortality.

Persistency is the rate at which insurance policies remain in force, expressed as a percentage of the number of policies remaining in force over the previous year. Policyholders sometimes do not pay premiums, thus, causing their policies to lapse.

The assumed rate of return on invested cash and desired spreads during the period that insurance policies or annuity contracts are in force also affects pricing of products and currently includes an assumption by the Company of a specified rate of return and/or spread on its investments for each year that such insurance or annuity product is in force.

Investments

The Company¢s principal investments are in fixed maturities, all of which are exposed to at least one of three primary sources of investment risk: credit, interest rate and market valuation. The financial statement risks are those associated with the recognition of impairments and income, as well as the determination of fair values. Management evaluates whether impairments have occurred case-by-case. Management considers a wide range of factors about the security issuer and uses its best judgment in evaluating the cause and decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in management¢s evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations used by the Company in the impairment evaluation process include, but are not limited to: (i) the length of time and the extent to which the market value has been below amortized cost; (ii) the potential for impairments of securities when the issuer is experiencing significant financial difficulties; (iii) the potential for impairments in an entire industry sector or sub-sector; (iv) the potential for impairments in certain economically depressed geographic locations; (v) the potential for impairments of securities where the issuer, series of issuers or industry has a catastrophic type of loss or has exhausted natural resources; and (vi) other subjective factors, including concentrations and information obtained from regulators and rating agencies. In addition, the earnings on certain investments are dependent upon market conditions, which could result in prepayments and changes in amounts to be earned due to changing interest rates or equity markets. The determination of fair values in the absence of quoted market values is based on valuation methodologies, securities the Company deems to be comparable and assumptions deemed appropriate given the circumstances. The use of different methodologies and assumptions may have a material effect on the estimated fair value amounts.

The Company derives a substantial portion of its total revenues from investment income. The Company manages most of its investments internally. All investments made on behalf of the Company are governed by the general requirements and guidelines established and approved by the Company's investment committee (the “Investment Committee”) and by qualitative and quantitative limits prescribed by applicable insurance laws and regulations. The Investment Committee meets regularly to set and review investment policy and to approve current investment plans. The actions of the Investment Committee are subject to review and approval by the Board of Directors of the Insurance Company. The Company's investment policy must comply with NYSID regulations and the regulations of other applicable regulatory bodies.

20.

The Company's investment philosophy generally focuses on purchasing investment grade securities with the intention of holding such securities to maturity. The Company's investment philosophy is focused on the intermediate to longer‑term horizon and is not oriented towards trading. However, as market opportunities, liquidity, or regulatory considerations may dictate, securities may be sold prior to maturity. The Company has categorized all fixed maturity securities as available for sale and carries such investments at market value.

The Company manages its investment portfolio to meet the diversification, yield and liquidity requirements of its insurance policy and annuity contract obligations. The Company's liquidity requirements are monitored regularly so that cash flow needs are sufficiently satisfied. Adjustments periodically are made to the Company's investment policies to reflect changes in the Company's short-and long-term cash needs, as well as changing business and economic conditions.

The Company seeks to manage its investment portfolio in part to reduce its exposure to interest rate fluctuations. In general, the market value of the Company's fixed maturity portfolio increases or decreases in an inverse relationship with fluctuations in interest rates, and the Company's net investment income increases or decreases in direct relationship with interest rate changes. For example, if interest rates decline, the Company's fixed maturity investments generally will increase in market value, while net investment income will decrease as fixed income investments mature or are sold and proceeds are reinvested at the declining rates, and vice versa. Management is aware that prevailing market interest rates frequently shift and, accordingly, the Company has adopted strategies that are designed to address either an increase or decrease in prevailing rates.

The primary market risk in the Company’s investment portfolio is interest rate risk and to a lesser degree, equity price risk. The Company's exposure to foreign exchange risk is not significant. The Company has no direct commodity risk. Changes in interest rates can potentially impact the Company’s profitability. In certain scenarios where interest rates are volatile, the Company could be exposed to disintermediation risk and reduction in net interest rate spread or profit margin.

Risk‑Based Capital

Under the NAIC's risk‑based capital formula, insurance companies must calculate and report information under a risk‑based capital formula. The standards require the computation of a risk‑based capital amount, which then is compared to a company's actual total adjusted capital. The computation involves applying factors to various financial data to address four primary risks: asset default, adverse insurance experience, disintermediation and external events. This information is intended to permit insurance regulators to identify and require remedial action for inadequately capitalized insurance companies, but is not designed to rank adequately capitalized companies. The NAIC formula provides for four levels of potential involvement by state regulators for inadequately capitalized insurance companies, ranging from a requirement for the Insurance Company to submit a plan to improve its capital (Company Action Level) to regulatory control of the insurance company (Mandatory Control Level). At December 31, 2003, the Insurance Company’s Company Action Level was $117.3 million and the Mandatory Control Level was $41.0 million. The Insurance Company’s adjusted capital at December 31, 2003 was $260.2 million or 222% of the Company Action Level, which exceeds all four-action levels.

Agency Ratings

Ratings are an important factor in establishing the competitive position in the insurance and financial services marketplace. There can be no assurance that the Company’s ratings will continue for any given period of time or that they will not be changed. In the event the Company’s ratings are downgraded, the level of revenues or the persistency of the Company’s business may be adversely impacted.

21.

During 2002, the Insurance Company's rating was lowered to “B+” (Very Good) from an “A-” (Excellent) by A.M. Best Company ("A.M. Best"). Publications of A.M. Best indicate that the “B+” rating is assigned to those companies that, in A.M. Best's opinion, have achieved a very good overall performance when compared to the norms of the insurance industry and that generally have demonstrated a good ability to meet their respective policyholder and other contractual obligations over a long period of time. In 2003, the “B+” rating was affirmed by A.M. Best.

In evaluating a company's statutory financial and operating performance, A.M. Best reviews the company's profitability, leverage and liquidity, as well as the company's book of business, the adequacy and soundness of its reinsurance, the quality and estimated market value of its assets, the adequacy of its reserves and the experience and competency of its management.

A.M. Best's rating is based on factors which primarily are relevant to policyholders, agents and intermediaries and is not directed towards the protection of investors, nor is it intended to allow investors to rely on such a rating in evaluating the financial condition of the Insurance Company.

During 2002, Moody's Investor Services (“Moody's”) lowered the Insurance Company's insurance financial strength rating from Baa1 to Ba1. In May 2004, the rating was further lowered to Ba2 (“Questionable financial security”) and the rating outlook was raised to negative to stable. Standard & Poor's Corporation (“Standard & Poor's”) lowered its rating of the Insurance Company's financial strength from A- to BB+, which is defined as “Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions”. Standard and Poors affirmed this rating on March 30, 2004. The credit rating of the Company's Senior Notes, due February 15, 2009 (the “Senior Notes”), was lowered to a B+ (More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial requirements) from a BBB- by Standard & Poor's and to a B1 (“Poor financial security”) from Ba1 by Moody's. In May 2004, Moody’s lowered this rating to B2 and raised the outlook on the rating from negative to stable.

For the first three quarters of 2004, the impact of the downgrades did not have a material impact on the financial statements of the Company. The reduction in sales was primarily attributable to management’s intention to preserve and build the Insurance Company’s capital and surplus ratios. Surrenders of the Company’s annuity products continue to remain below 5% of the surrenderable annuities and have not had a material impact on the Company’s consolidated financial statements.

Results of Operations

Comparison of nine months ended September 30, 2004 compared to the same period in 2003.

Revenues

Annuity Considerations and Life Insurance Premiums

Total annuity considerations and life insurance premiums decreased to approximately $29.9 million for the nine months ended September 30, 2004 from approximately $32.1 million for the nine months ended September 30, 2003, a decrease of approximately $2.2 million. Of this amount, annuity considerations decreased to approximately $21.5 million for the nine months ended September 30, 2004 from approximately $24.8 million for the nine months ended September 30, 2003 a decrease of approximately $3.3 million. In accordance with GAAP, sales of single premium deferred annuities are not reported as insurance revenues, but rather as additions to policyholder account balances. Based on statutory accounting, revenue from sales of single premium annuities were approximately $171.7 million and approximately $189.1 million during the nine months ended September 30, 2004 and September 30, 2003, respectively. The decrease is in line with management’s intent to preserve and build the Insurance Company’s capital and surplus ratios.

Policy Fee Income

Universal life and investment type policy fee income was approximately $2.3 million for the nine months ended September 30, 2004, as compared to approximately $2.3 million for the nine months ended September 30, 2003.

22.

Net Investment Income

Net investment income totaled approximately $251.6 million during the first nine months of 2004, as compared to approximately $207.4 million during the first nine months of 2003. This represents an increase of approximately $44.2 million. This increase is due principally to the increase in income from other invested assets of approximately $48.4 million during the first nine months of 2004, as compared to approximately $14.8 million during the first nine months of 2003 and from an increase in income on fixed maturities from September 30, 2003 of approximately $11.8 million. The Company's ratio of net investment income to average cash and invested assets less net investment income for the periods ended September 30, 2004 and September 30, 2003 was approximately 7.75% and 6.87%, respectively.

Net Realized Investment Gains and Losses

Realized investment gains amount to approximately $13.2 million during the first nine months of 2004, as compared to approximately $6.3 million during the first nine months of 2003. Realized investment gains and losses for the nine months ended September 30, 2004 and 2003 respectively, include realized investment losses or writedowns of approximately $4.6 million and $28.4 million, respectively, attributable to other than temporary impairments in the value of certain securities contained in the Company's investment portfolio. Investment securities with unrealized losses are placed on an internal watch list and are carefully evaluated to determine whether such losses are other than temporary. Evaluations of watch list securities are monitored on an ongoing basis. Various criteria are utilized in the evaluation of the financial performance of the issuer, including capital structure, debt maturities, earnings trends, asset quality, industry trends, regional and economic trends and specific events including: a) company specific event, such as missed interest payments, accounting issues, gain or loss of major revenue generating contract(s), significant change in availability and cost of raw material or labor; and, b) specific market-driven events such as dramatic changes in interest rates or geo-political events. The result of this analysis is then evaluated in the context of the Company’s intent to hold investments to maturity barring any significant adverse change in credit conditions, as well as the Company’s need for liquidity.

When impairments are determined to be other than temporary, the Company adjusts the book value to reflect the fair value, as appropriate, on a quarterly basis and are recorded in the income statement. Realized investment gains (losses) also result from sales of certain equities and convertible securities, and calls and sales of fixed maturity investments in the Company's investment portfolio.

The following table presents the amortized cost and gross unrealized losses for securities where the estimated fair value had declined and remained below amortized cost at September 30, 2004:

	Less Than 12 Months		12 Months or More		Total
	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
Description of Securities			(in thousands)

US Treasury obligations and direct obligations of US Government Agencies	119,221	1,754	192,992	11,546	312,213	13,300
Corporate Bonds	242,673	11,150	566,005	86,111	808,678	97,261
Preferred Stocks	25,751	472	11,684	646	37,435	1,118
Subtotal Fixed Maturities	387,645	13,376	770,681	98,303	1,158,326	111,679
Common Stock	16,273	478	0	0	16,273	478
Total Temporarily Impaired Securities	403,918	13,854	770,681	98,303	1,174,599	112,157

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The following table presents the total gross unrealized losses for fixed maturities where the estimated fair value had declined and remained below amortized cost by September 30, 2004.

	Gross Unrealized Losses	% Of Total	Gross Unrealized Losses For Principal Protected Notes	% of Total	Gross Unrealized Losses Net of Principal Protected Notes	% of Total
	(in thousands)
Less than twelve months	13,376	11.98	0	0	13,376	27.42
Twelve months or more	98,303	88.02	62,886	100.00	35,417	72.58
Total	111,679	100.00	62,886	100.00	48,793	100.00

The principal protected notes described in this Note to the Consolidated Financial Statements consist of a variable rate coupon bond secured by AAA-rated zero coupon bonds. The bond collateral is deposited into a trust account (trustees includes The Bank of New York, JP Morgan, U.S. Trust Company and State Street Bank). The bond collateral accretes to par value at maturity of the principal protected notes, thus defeasing the notes and insulating the Company from any negative credit events that might interfere with the repayment of principal.

As of September 30, 2004, the Company had approximately $311 million of gross unrealized gains in fixed maturities.

Total Benefits and Expenses

Total benefits and expenses for the nine months ended September 30, 2004 aggregated approximately $228.0 million, as compared to approximately $217.1 million for the nine months ended September 30, 2003. This represents an increase of $10.9 million from the first nine months of 2004. The reasons for this increase will be discussed below.

Interest Credited and Benefits to Policyholders

Interest credited and other benefits to policyholders amounted to approximately $190.5 million for the nine months ended September 30, 2004, as compared to approximately $195.8 million for the nine months ended September 30, 2003. This represents a decrease of $5.3 million.

The Insurance Company's average credited rate for reserves and account balances for the nine months ended September 30, 2004 and 2003 were less than the Company's ratio of net investment income to mean assets for the same period as noted above under "Net Investment Income". Although management does not currently expect material declines in the spread between the Company's average credited rate for reserves and account balances and the Company's ratio of net investment income to mean assets (the "Spread"), there can be no assurance that the Spread will not decline in future periods or that such decline will not have a material adverse effect on the Company's financial condition and results of operations. Depending, in part, upon competitive factors affecting the industry in general, and the Company, in particular, the Company may, from time to time, change the average credited rates on certain of its products. There can be no assurance that the Company will reduce such rates or that any such reductions will broaden the Spread.

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Interest Expense on Notes Payable

The interest expense on the Company's notes payable amounted to approximately $7.3 million for the nine months ended September 30, 2004, and approximately $7.2 million for the nine months ended September 30, 2003.

General Expenses, Taxes and Commissions

General expenses, taxes and commissions to agents totaled approximately $21.7 million for the nine months ended September 30, 2004, as compared to approximately $20.1 million for the nine months ended September 30, 2003. This represents an increase of approximately $1.6 million. The increase principally is attributable to an additional $2 million pension plan contribution the Company made in the second quarter of 2004 and the termination of the Company’s key-man policy which caused a savings of approximately $600 thousand in the first quarter of 2003.

Deferred Policy Acquisition Costs

The change in the net DAC for the nine months ended September 30, 2004, resulted in a charge of approximately $8.5 million, as compared to a credit of approximately $6.0 for the nine months ended September 30, 2003. Parts of such changes are due to the costs associated with product sales, which have been deferred (accounting for a credit of approximately $8.3 million in the first nine months of 2004 and $8.3 million in the first nine months of 2003.) Another portion of such changes are due to amortization of the DAC on deferred annuity business, which reflects the impact that changes in estimated gross profits have on these unamortized deferred acquisition costs, which are reflected in the year such estimated gross profits are revised. Such changes accounted for a charge of approximately $12.8 million in the first nine months of 2004 and a credit of approximately $1.2 million in the first nine months of 2003. The balance is due to the amortization of the DAC for the remainder of the business (accounting for a charge of approximately $4.0 million for the first nine months of 2004 and a charge of approximately $3.5 million for the first nine months of 2003).

Under applicable accounting rules (FASB 97), DAC related to deferred annuities is amortized in proportion to the estimated gross profits over the estimated lives of the contracts. Essentially, as estimated profits of the Company related to these assets increase, the amount and timing of amortization is accelerated. In 2001 and 2002, the Company had significant realized investment losses, leading to substantially increased credits against DAC amortization in those years. In the first nine months of 2004, the Company’s investment performance was substantially improved from the prior years, resulting in a much-reduced credit against DAC amortization. (See also the discussion of Deferred Policy Acquisition Costs under Critical Accounting Policies below.)

Income Before Income Taxes

For the reasons discussed above, income before income taxes amounted to approximately $69.5 million for the nine months ended September 30, 2004, as compared to an income of approximately $32.2 million for the nine months ended September 30, 2003.

Income Taxes

Income tax expense was $24.1 million for the first nine months of 2004 as compared to an income tax expense of approximately $9.7 million for the first nine months of 2003. This increase is primarily attributable to higher income before income taxes.

Net Income

For the reasons discussed above, the Company had net income of approximately $45.5 million during the nine months ended September 30, 2004 and a net income of approximately $22.4 million during the nine months ended September 30, 2003.

Liquidity and Capital Resources

The Company is an insurance holding company and its primary uses of cash are debt service obligations, operating expenses and dividend payments. The Company's principal source of cash is rent from its real estate, interest on its investments and dividends from

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the Insurance Company. During the third quarter of 2004, the Company's Board of Directors declared a quarterly cash dividend of $.10 per share payable on October 1, 2004. During the first nine months of 2004 the Company did not purchase or retire any shares of common stock.

The Insurance Company is subject to various regulatory restrictions on the maximum amount of payments, including loans or cash advances that it may make to the Company without obtaining prior regulatory approval. Under the New York Insurance Law, the Insurance Company is permitted without prior insurance regulatory clearance to pay a stockholder dividend to the Company as long as the aggregate amount of all such dividends in any calendar year does not exceed the lesser of (i) 10% of its surplus as of the immediately preceding calendar year and (ii) its net gain from operations for the immediately preceding calendar year (excluding realized capital gains and losses). The Insurance Company will be permitted to pay a stockholder dividend to the Company in excess of the lesser of such two amounts only if it files notice of its intention to declare such a dividend and the amount thereof with the Superintendent and the Superintendent does not disapprove the distribution. Under the New York Insurance Law, the Superintendent has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders. The NYSID has established informal guidelines for such determinations.

The guidelines, among other things, focus on the insurer's overall financial condition and profitability under statutory accounting practices. Management of the Company cannot provide assurance that the Insurance Company will have statutory earnings to support payment of dividends to the Company in an amount sufficient to fund its cash requirements and pay cash dividends or that the Superintendent will not disapprove any dividends that the Insurance Company must submit for the Superintendent's consideration. The Company's other insurance subsidiary is also subject to restrictions on the payment of dividends to its parent company. During the first nine months of 2004 and 2003, the Insurance Company paid no dividends to the Company.

Approximately two-thirds of the annuities held by the Company have a surrender feature that allows the purchaser to surrender the policy in exchange for the payment of a surrender fee, which diminishes gradually over the early policy years. In an environment of flat or falling interest rates, surrender activity is generally low, as annuitants prefer to lock in the higher rates obtained. In an environment of rising interest rates, surrender activity would be expected to increase, as investors seek to place their money in higher interest rate instruments. The surrender charges, however, act as a disincentive to surrender, as the annuitant must take into account the cost of surrender in calculating the likelihood of higher post-surrender returns. Also, the Company’s ability to increase the interest rate on certain of these policies can act as a disincentive to surrenders. The Company has operated in the annuity business throughout rising and falling interest rate periods and has consistently maintained a favorable surrender rate regardless of the rate trends. The Company's current surrender rate is less than five percent per year, which it believes to be at the low end of industry norms.

The Company conducts testing of its cash flow needs based on varying interest rate scenarios. These tests are conducted pursuant to the New York State Insurance Department requirements and are filed with that Department. Current testing indicates that in a moderately increasing interest rate environment, annuity surrenders would not have a material impact on the Company's liquidity. This is partially due to the fact that the Company's average annuity rate is somewhat higher than the market average. During the recent low interest rate environment, the Company had curtailed the issuance of new annuities due to the impact of investment losses on its overall asset base. The Company's blend of deferred and immediate annuities should operate as a buffer to the company against interest sensitive surrenders in a rising interest rate environment.

The Company's life insurance liabilities are actuarially calculated on a regular basis and the Company is capable of meeting such liabilities. Reserves for such business are carefully monitored and regulated by the New York State Insurance Department. Because life insurance products represent a relatively small percentage of the Company's product mix and because the business is heavily reinsured, it is not anticipated that any spike in life insurance claims would have a material impact on the Company's liquidity.

The Company's assets/liability management process is designed to target asset duration to match the duration of liabilities. This process is required to fit within the Company's yield driven investment model, designed to ensure a positive spread between yield and payment rates. To achieve yield objectives in the current environment, investments have tended to have longer durations than anticipated liabilities. If a substantial call on liabilities forced the Company to liquidate some of its long-term investments, the Company

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would experience a decline in overall investment income due to lower invested assets and a decline in invested yields. The Company would attempt to optimize its performance, i.e. minimize the loss of income and/or assets, by the selection for sale of those shorter-term assets, which would produce the highest possible price. Moreover, the mix of the Company's products between deferred and immediate annuities provides the Company with some protection against excessive calls on liabilities.

The Company does not currently rely on credit facilities to fund its liquidity needs for the payment of policyholder withdrawals or claims and does not anticipate such a need in the coming year. Moreover, based on projected trends within the Company and in the economy as whole and on the Company's financial condition, the Company does not anticipate the need to liquidate a material amount of its investment portfolio to meet surrender and policy claim liabilities in the coming year.

Principal sources of funds at the Insurance Company are premiums and other considerations paid, contract charges earned, net investment income received and proceeds from investments called, redeemed or sold. The principal uses of these funds are the payment of benefits on life insurance policies and annuity contracts, operating expenses and the purchase of investments. Net cash provided by the Company's operating activities (reflecting principally: (i) premiums and contract charges collected less (ii) benefits paid on life insurance and annuity products plus (iii) income collected on invested assets less (iv) commissions and other general expenses paid) was approximately $37.7 million and $1.1 million during the nine months ended September 30, 2004 and 2003, respectively. Net cash (used in)/provided by the Company's investing activities (principally reflecting investments purchased less investments called, redeemed or sold) was approximately $(132.0) million, and $125.0 million during the nine months ended September 30, 2004 and 2003, respectively.

For purposes of the Company's consolidated statements of cash flows, financing activities relate primarily to sales and surrenders of the Company's universal life insurance and annuity products. The payment of dividends by the Company is also considered to be a financing activity. In addition, as previously discussed, the Company no longer participates in dollar roll repurchase agreements, which are considered to be a financing activity. Net cash provided by (used in) the Company's financing activities amounted to approximately $92.2 million and $(117.2) million during the nine months ended September 30, 2004 and 2003, respectively. This fluctuation is primarily attributable to higher policyholder account balances and lower levels in deposits of policies to be issued at September 30, 2004.

The indenture governing the Senior Notes contains covenants relating to limitations on liens and sale or issuance of capital stock of the Insurance Company. In the event the Company violates such covenants as defined in the indenture, the Company may be obligated to offer to repurchase the entire outstanding principal amount of such notes. The Company believes that it is in compliance with all of the covenants.

Given the Insurance Company's historic cash flow and current financial results, management believes that, for the next twelve months and for the reasonably foreseeable future, the Insurance Company's cash flow from operating activities will provide sufficient liquidity for the operations of the Insurance Company, as well as provide sufficient funds to the Company, so that the Company will be able to make dividend payments, satisfy its debt service obligations and pay its other operating expenses.

To meet its anticipated liquidity requirements, the Company purchases investments taking into account the anticipated future cash flow requirements of its underlying liabilities. In managing the relationship between assets and liabilities, the Company analyzes the cash flows necessary to correspond with the expected cash needs on the underlying liabilities under various interest rate scenarios. In addition, the Company invests a portion of its total assets in short-term investments (approximately .50% and ..52% as of September 30, 2004 and December 31, 2003, respectively). The effective duration of the Company's debt portfolio was approximately 8.22 years as of September 30, 2004. The Company's fixed maturity investments are all classified as available for sale and includes those securities available to be sold in response to, among other things, changes in market interest rates, changes in the security's prepayment risk, the Company's need for liquidity and other similar factors. Fixed maturity investments available for sale represent investments, which may be sold in response to changes in various economic conditions.

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These investments are carried at estimated market value and unrealized gains and losses, net of the effects of amortization of deferred policy acquisition costs and deferred federal income taxes, are charged directly to shareholders' equity, unless a decline in market value is considered to be other than temporary in which event the Company recognizes a loss. Equity securities include common stocks and non‑redeemable preferred stocks and are carried at market, with the related unrealized gains and losses, net of federal income taxes, if any, charged directly to shareholders' equity, unless a decline in market value is considered to be other than temporary, in which event, the Company recognizes a loss.

The Insurance Company is subject to Regulation 130 adopted and promulgated by the New York State Insurance Department ("NYSID"). Under this Regulation, the Insurance Company's ownership of below investment grade debt securities is limited to 20.0% of total admitted assets, as calculated under statutory accounting practices. As of September 30, 2004 and December 31, 2003, approximately 6.8% and 7.4%, respectively, of the Insurance Company's total admitted assets were invested in below investment grade debt securities.

The Company maintains a portfolio, which includes below investment grade fixed maturity debt securities, which were purchased to achieve a more favorable investment yield, all of which are classified as available for sale and reported at fair value. As of September 30, 2004 and December 31, 2003, the carrying value of these securities was approximately $359.5 million and $328.8 million, respectively, (representing approximately 7.6% and 7.3% of the Company's total assets, respectively).

Investments in below investment grade securities have different risks than investments in corporate debt securities rated investment grade. Risk of loss upon default by the borrower is significantly greater with respect to below investment grade securities than with other corporate debt securities because below investment grade securities generally are unsecured and often are subordinated to other creditors of the issuer. Also, issuers of below investment grade securities usually have high levels of indebtedness and often are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than are investment grade issuers. Typically, there is only a thinly traded market for such securities and recent market quotations may not be available for some of these securities. Market quotes generally are available only from a limited number of dealers and may not represent firm bids of such dealers or prices for actual sales. The Company attempts to reduce the overall risk in its below investment grade portfolio, as in all of its investments, through careful credit analysis, investment policy limitations, and diversification by company and by industry. Below investment grade debt investments, as well as other investments, are being monitored on an ongoing basis.

As of September 30, 2004, approximately 7.4% of the Company's total invested assets were invested in limited partnerships. Such investments are included in the Company's consolidated balance sheet under the heading "Other invested assets." See "Note 2 to the Notes to Consolidated Financial Statements." The Company is committed, if called upon during a specified period, to contribute an aggregate of approximately $101.6 million of additional capital to certain of these limited partnerships. However, management does not expect the entire amount to be drawn down as certain of these limited partnerships are nearing the end of the period during which investors are required to make contributions. $12.3 million in commitments will expire in 2004, $12.4 million in 2005, $38.5 million in 2006, $28.4 million in 2007 and $10.0 million in 2009. Pursuant to NYSID regulations, the Company's investments in equity securities, including limited partnership interests, may not exceed 20% of the Company's total invested assets. The Company may make selective investments in additional limited partnerships as opportunities arise. In general, risks associated with such limited partnerships include those related to their underlying investments (i.e., equity securities, debt securities and real estate), plus a level of illiquidity, which is mitigated by the ability of the Company to take annual distributions of partnership earnings. There can be no assurance that the Company will continue to achieve the same level of returns on its investments in limited partnerships as it has historically or that the Company will achieve any returns on such investments at all. Further, there can be no assurance that the Company will receive a return of all or any portion of its current or future capital investments in limited partnerships. The failure of the Company to receive the return of a material portion of its capital investments in limited partnerships, or to achieve historic levels of return on such investments, could have a material adverse effect on the Company's financial condition and results of operations.

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As previously discussed, the Company no longer participates in "dollar roll" repurchase agreements. There were no outstanding repurchase agreements at September 30, 2004 and December 31, 2003, respectively.

All 50 states of the United States, the District of Columbia and Puerto Rico have insurance guaranty fund laws requiring all life insurance companies doing business within the jurisdiction to participate in guaranty associations, which are organized to pay contractual obligations under insurance policies (and certificates issued under group insurance policies) issued by impaired or insolvent life insurance companies. These associations levy assessments (up to prescribed limits) on all member insurers in a particular state on the basis of the proportionate share of the premiums written by member insurers in the lines of business in which the impaired or insolvent insurer is engaged. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets. These assessments may be deferred or forgiven under most guaranty laws if they would threaten an insurer's solvency. The amount of these assessments in prior years has not been material, however, the amount and timing of any future assessment on the Insurance Company under these laws cannot be reasonably estimated and are beyond the control of the Company and the Insurance Company. Recent failures of substantially larger insurance companies could result in future assessments in material amounts.

Market Risk

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates, and other relevant market rate or price changes. Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying assets are traded. The following is a discussion of the Company's primary market risk exposures and how those exposures are currently managed as of September 30, 2004.

We believe that our fixed-rate liabilities should be backed by a portfolio composed principally of fixed-rate investments that generate predictable rates of return. We do not have a specific target rate of return. Instead, our rates of return vary over time depending on the current interest rate environment, the slope of the yield curve, the spread at which fixed-rate investments are priced over the yield curve, and general economic conditions. Our portfolio strategy is designed to achieve adequate risk-adjusted returns consistent with our investment objectives of effective asset-liability matching, liquidity and safety.

The market value of the Company's fixed maturity portfolio changes as interest rates change. In general, rate decreases cause asset prices to rise, while rate increases cause asset prices to fall.

There were no capital expenditures during the first nine months of 2004 and no outstanding commitments as of September 30, 2004.

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Off-Balance Sheet Arrangements

The Company has not entered into any off-balance sheet financing arrangements and has made no financial commitments or guarantees with any unconsolidated subsidiary or special purpose entity. All of the Company’s subsidiaries are wholly owned and their results are included in the accompanying consolidated financial statements.

Contractual Obligations

The accompanying Notes to Consolidated Financial Statements contain information regarding payments required under existing long-term borrowing arrangements. The following presents a summary of the Company’s significant contractual obligations.

CONTRACTUAL OBLIGATIONS TABLE

	Payment Due By Period (in thousands)

Contractual Obligations	Less than 1 Year	1-3 Years	4-5 Years	After 5 Years	Total

Long Term Debt Obligations				$100,000	$100,000

Policyholder Account Balance with Contractual Maturities (1)	$157,800	$275,400	$218,300	$1,320,200	$1,971,700

⁽¹⁾ These liabilities are reflected within “Policyholder Liabilities” in the consolidated balance sheet, and amount to $1,006.1 Million as of September 30, 2004. The difference between the recorded liability and the total payment amount is $965.6 Million and is comprised of (i) future interest to be credited and (ii) the effect of mortality discount for those payments that are life contingent. Most of the remaining policyholder liabilities ($2,717.7 Million) involve deferred annuity contracts, which are contractually surrenderable at any time. Approximately 78% of these obligations have surrender penalties. These surrender charges, along with those contracts that involve contractual maturities, help to mitigate the asset/liability management process. (See discussion under Liquidity and Capital Resources Section.)

Long-term debt obligations consist of $100 million, 7 7/8% senior notes due February 15, 2009. See “Note 3 in Notes to the Consolidated Financials Statements” for additional discussion concerning both long-term and short-term obligations.

Effects of Inflation and Interest Rate Changes

In a rising interest rate environment, the Company's average cost of funds would be expected to increase over time as it prices its new and renewing annuities to maintain a generally competitive market rate. In addition, the market value of the Company's fixed maturity portfolio decreases resulting in a decline in shareholders' equity. Concurrently, the Company would attempt to place new funds in investments that were matched in duration to, and higher yielding than, the liabilities associated with such annuities. Management believes that liquidity necessary in such an interest rate environment to fund withdrawals, including surrenders, would be available through income, cash flow, and the Company's cash reserves or from the sale of short-term investments.

In a declining interest rate environment, the Company's cost of funds would be expected to decrease over time, reflecting lower interest crediting rates on its fixed annuities. Should increased liquidity be required for withdrawals in such an interest rate environment, management believes that the portion of the Company's investments which are designated as available for sale in the Company's consolidated balance sheet could be sold without materially adverse consequences in light of the general strengthening in market prices which would be expected in the fixed maturity security market.

Interest rate changes also may have temporary effects on the sale and profitability of our universal life and annuity products. For example, if interest rates rise, competing investments (such as annuity or life insurance products offered by the Company's competitors, certificates of deposit, mutual funds and similar instruments) may become more attractive to potential purchasers of the Company's products until the Company increases the rates credited to holders of its universal life and annuity products. In contrast, as interest rates fall, we would attempt to lower our credited rates to compensate for the corresponding decline in net investment income. As a result, changes in interest rates could materially adversely effect the financial condition and results of operations of the Company depending on the

30.

attractiveness of alternative investments available to the Company's customers. In that regard, in the current interest rate environment, the Company has attempted to maintain its credited rates at competitive levels designed to discourage surrenders and also to be considered attractive to purchasers of new annuity products. In addition, because the level of prevailing interest rates impacts the Company’s competitors in the same fashion, management does not believe that the current interest rate environment will materially affect the Company's competitive position vis a vis other life insurance companies that emphasize the sale of annuity products.

Notwithstanding the foregoing, if interest rates continue at current levels or decline, there can be no assurance that this segment of the life insurance industry would not experience increased levels of surrenders and reduced sales and thereby be materially adversely affected. Conversely, if interest rates rise, competing investments (such as annuity or life insurance products offered by the Company’s competitors, certificates of deposit, mutual funds and similar investments) may become more attractive to potential purchasers of the Company’s products until the Company increases its credited rates.

CRITICAL ACCOUNTING POLICIES ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (²GAAP²) requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the consolidated financial statements. The critical accounting policies, estimates and related judgments underlying the Company¢s consolidated financial statements are summarized below. In applying these accounting policies, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company’s business operations.

INVESTMENTS

The Company¢s principal investments are in fixed maturities, all of which are exposed to at least one of three primary sources of investment risk: credit, interest rate and market valuation. The financial statement risks are those associated with the recognition of impairments and income, as well as the determination of fair values. Recognition of income ceases when a bond goes into default and management evaluates whether impairments have occurred case-by-case. Management considers a wide range of factors about the security issuer and uses its best judgment in evaluating the cause and decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in management¢s evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations used by the Company in the impairment evaluation process include, but are not limited to: (i) the length of time and the extent to which the market value has been below amortized cost; (ii) the potential for impairments of securities when the issuer is experiencing significant financial difficulties; (iii) the potential for impairments in an entire industry sector or sub-sector; (iv) the potential for impairments in certain economically depressed geographic locations; (v) the potential for impairments of securities where the issuer, series of issuers or industry has a catastrophic type of loss or has exhausted natural resources; and (vi) other subjective factors, including concentrations and information obtained from regulators and rating agencies. In addition, the earnings on certain investments are dependent upon market conditions, which could result in prepayments and changes in amounts to be earned due to changing interest rates or equity markets. The determination of fair values in the absence of quoted market values is based on valuation methodologies, securities the Company deems to be comparable and assumptions deemed appropriate given the circumstances. The use of different methodologies and assumptions may have a material effect on the estimated fair value amounts.

DEFERRED POLICY ACQUISITION COSTS

The Company incurs significant costs in connection with acquiring new business. These costs, which vary with and are primarily related to the production of new business, are deferred. The recovery of such costs is dependent upon the future profitability of the related product, which in turn is dependent mainly on investment returns in excess of interest credited, as well as, persistency and expenses. These factors enter into management¢s estimate of future gross profits, which generally are used to amortize such costs. Changes in these estimates result in changes to the amounts expensed in the reporting period in which the revisions are made and could result in the impairment of the deferred

31.

acquisition asset and a charge to income if estimated future gross profits are less than amounts deferred.

FUTURE POLICY BENEFITS

The Company establishes liabilities for amounts payable under life and health insurance policies and annuity contracts. Generally, these amounts are payable over a long period of time and the profitability of the products is dependent on the pricing. Principal assumptions used in pricing policies and in the establishment of liabilities for future policy benefits are investment returns, mortality, expenses and persistency. The following section discusses the Company’s policy and practices regarding life insurance and annuity reserves.

Life Insurance and Annuity Reserves

In accordance with applicable insurance regulations, the Company has established and carries as liabilities in its statutory financial statements actuarially determined reserves that are calculated to satisfy its policy and contractual obligations. Reserves, together with premiums to be received on outstanding policies and contracts and interest thereon at certain assumed rates, are calculated to be sufficient to satisfy policy and contractual obligations. The actuarial factors used in determining such reserves are based on statutorily prescribed mortality and morbidity tables and interest rates. Reserves maintained also include unearned premiums, premium deposits, reserves for claims that have been reported but are not yet paid, reserves for claims that have been incurred but have not yet been reported and claims in the process of settlement. Generally, the Company maintains reserves on assumed reinsurance, but does not continue accumulating reserves with respect to that portion of policies or contracts that are reinsured with, or ceded to, other insurance companies. Reserves for assumed reinsurance are computed on bases essentially comparable to direct insurance reserves.

The reserves reflected in the Company's condensed consolidated financial statements included herein are calculated based on GAAP and differ from those specified by the laws of the various states in which the Insurance Company does business and those reflected in the Insurance Company's statutory financial statements. These differences arise from the use of different mortality and morbidity tables and interest rate assumptions, the introduction of lapse assumptions into the reserve calculation and the use of the net level premium reserve method on all insurance business.

The reserves reflected in the Company's condensed consolidated financial statements are based upon the Company's best estimates of mortality, persistency, expenses and investment income, with appropriate provisions for adverse statistical deviation and the use of the net level premium method for all non‑interest‑sensitive products. For all interest‑sensitive products the policy account value is equal to the accumulation of gross premiums plus interest credited less mortality and expense charges and withdrawals. In determining reserves for its insurance and annuity products, the Company performs periodic studies to compare current experience for mortality, interest and lapse rates with expected experience in the reserve assumptions. Differences are reflected currently in earnings for each period. The Company historically has not experienced significant adverse deviations from its assumptions.

EMPLOYEE BENEFIT PLANS

The Insurance Company sponsors a defined benefit plan covering employees who meet specified eligibility requirements. The reported expense and liability associated with these plans requires use of assumptions which include the discount rate, expected return on plan assets and rate of future compensation increases as determined by the Insurance Company. Management determines these assumptions based upon currently available market and industry data, historical performance of the plans and its assets. The actuarial assumptions used by the Insurance Company may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of the participants. These differences may have a significant effect on the Company’s consolidated financial statements.

During 2003, the actuarial assumptions used in the calculation of the Company's projected benefit obligation include the expected rate of compensation increases of 3.00%, a discount rate of 6.00% and an expected return on assets of 5.50%. The projected benefit obligation at September 30, 2004 is $10.6 million.

32.

In February 2004, in contemplation of a voluntary termination of the Presidential Life Insurance Company Employees’ Retirement Plan, the Company adopted a resolution, which "froze" the Plan as of February 18, 2004. This closed the Plan to new entrants and terminated the accrual of any future benefits under the Plan after such date. In addition to freezing the Plan, the Company approved a resolution to utilize 1971 Group Mortality Tables and a seven percent (7%) investment yield for use in computing actuarial calculations. On September 8, 2004 the Board of Directors passed a resolution that terminates the Plan effective November 30, 2004, subject to the provisions set forth in ERISA. The net assets of the Plan will be allocated for payment of plan benefits to the participants in an order of priority determined in accordance with ERISA, applicable regulations thereunder and the Plan Document. The Company anticipates the full distribution of Plan’s assets to take place in December 2004.

CONTROLS AND PROCEDURES

The Chairman and Chief Executive Officer and the Principal Financial Officer of the Company (its principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of a date within 90 days prior to the date of the filing of this Report, that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chairman and Chief Executive Officer and the Principal Financial Officer of the Company, as appropriate to allow timely decisions regarding required disclosure.

There are no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of such evaluation.

PART II ‑ OTHER INFORMATION

Item 1. Legal Proceedings

Item 2. Changes in Securities

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8‑K

a) Exhibits

None

b) Reports on Form 8‑K

During the quarter ended September 30, 2004, the Company did not file a current report on Form 8-K.

33.

PRESIDENTIAL LIFE CORPORATION

November 9, 2004

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Presidential Life Corporation

(Registrant)

Date: November 9, 2004 /s/ Herbert Kurz

Herbert Kurz, President and Duly

Authorized Officer of the Registrant

Date: November 9, 2004 /s/ Charles J. Snyder

Charles J. Snyder, Principal

Accounting Officer of the Registrant

34.

PRESIDENTIAL LIFE CORPORATION

November 9, 2004

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Presidential Life Corporation

(Registrant)

Date: November 9, 2004 /s/Herbert Kurz

----------------------

Herbert Kurz, President and Duly

Authorized Officer of the Registrant

Date: November 9, 2004 /s/ Charles Snyder

----------------------

Charles J. Snyder, Principal

Accounting Officer of the Registrant

34.

Exhibit 99.01

Certification of Chief Executive Officer

Pursuant to Exchange Act Rule 13a-15f

I, Herbert Kurz, Chief Executive Officer of Presidential Life Corporation certify that:

I have reviewed this quarterly report on Form 10Q of Presidential Life Corporation;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
The company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and

The company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.

Date: November 9, 2004 /s/Herbert Kurz

- ----------------------

Herbert Kurz

Chief Executive Officer

35.

Exhibit 99.02

Certification of Principal Financial Officer

Pursuant to Exchange Act Rule 13a-15f

I, Charles Snyder, Principal Financial Officer and Treasurer of Presidential Life Corporation certify that:

1. I have reviewed this quarterly report on Form 10-Q of Presidential Life Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
The company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

The company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions):

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.

Date:November 9, 2004 /s/Charles Snyder

- ----------------------

Charles Snyder

Treasurer and Principal Accounting Officer

36.

Exhibit 99.03

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Presidential Life Corporation (the "Company") on Form 10-Q for the period ending September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Herbert Kurz, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/Herbert Kurz

------------------

Herbert Kurz

Chief Executive Officer

November 9, 2004

37.

Exhibit 99.04

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Presidential Life Corporation (the "Company") on Form 10-Q for the period ending September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Charles Snyder, Treasurer and Principal Accounting Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/Charles Snyder

-------------------

Charles Snyder

Treasurer and Principal Accounting Officer

November 9, 2004

38.

US Treasury obligations and direct obligations of US Government Agencies

Components of Net Periodic Benefit Cost

Components of Net Periodic Benefit Cost

Employer Contributions

General

Pricing

Investments

Risk‑Based Capital

Agency Ratings

Comparison of nine months ended September 30, 2004 compared to the same period in 2003.

Revenues

Net Investment Income

US Treasury obligations and direct obligations of US Government Agencies

Off-Balance Sheet Arrangements

Contractual Obligations

Contractual Obligations

Total

Effects of Inflation and Interest Rate Changes

CRITICAL ACCOUNTING POLICIES ESTIMATES

INVESTMENTS

DEFERRED POLICY ACQUISITION COSTS

FUTURE POLICY BENEFITS

Life Insurance and Annuity Reserves

PART II ‑ OTHER INFORMATION

Exhibit 99.01

Certification of Chief Executive Officer

Pursuant to Exchange Act Rule 13a-15f

Exhibit 99.02

Certification of Principal Financial Officer